Bogle: Tax Break for PE Firms ‘Ridiculous’

John Bogle, the Vanguard Group Inc.
founder who popularized index investing, said lower tax rates
for certain types of gains earned by private equity firms are
“ridiculous.”

“I’m arguing for the capital gains rate taxable as
ordinary income,” Bogle said today in an interview with
Bloomberg TV's Betty Liu at a conference organized by Bloomberg
Link in New York.

Bogle, 82, who described himself as a lifelong Republican,
has lashed out against Wall Street excesses in recent months and
has backed the so-called Volcker rule seeking to curb risky bets
by financial firms. Mitt Romney’s campaign for the Republican
presidential nomination has drawn increased scrutiny to the
private equity industry, including his former firm, Boston-based
Bain Capital LLC.

Private equity managers typically earn a percentage of
their profits from investments as compensation, which is known
as carried interest. The compensation is taxed at the 15 percent
rate for capital gains, rather than the 35 percent top rate that
applies to regular income.

“Carried interest is a bit of a technical fraud,” said
Bogle. “I do feel these things strongly.”

Bogle has spent his career advocating a low-cost approach
to investing and speaking out against against conflicts of
interest and speculative trading in the financial industry. Last
month, he said he would grade the U.S. financial system a “D”
and urged greater regulation, sharing the views of Paul Volcker,
the former Federal Reserve chairman who has proposed the Volcker
rule.

Bogle, a Princeton University graduate, founded Valley
Forge, Pennsylvania-based Vanguard in 1974 and introduced the
Vanguard 500 Index Fund, the first retail index mutual fund, two
years later. His economics research at Princeton helped lay the
groundwork for index mutual funds. When Bogle retired from
Vanguard in 2000, the company established the Bogle Financial
Markets Research Center.